Prices and Charts

Has Gold Bottomed Out?

Gold in NZ dollars has edged up this week. It bounced off horizontal support at $1775 and got up close to the 50 day moving average (MA) this week. Before dipping back down again today.

Similarly NZD silver also touched the long term uptrend line this week. We’d say NZD silver looks set for a bounce higher from here. We have the NZ dollar perhaps getting close to falling again (see below), and the USD silver price bouncing up off horizontal support. So right now the odds favour a move higher for silver.

The positioning of silver futures traders also points to that outcome. More on that below.

Kiwi Dollar Could Turn Lower From Here

The NZ dollar is close to the 50 day MA line. Also touching the overhead downtrend line. The Kiwi may struggle to get through these, as it has done since April.

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The Yield Curve Recession Predictor: Update

It’s been 5 months since we wrote about the yield curve. A very important indicator to watch in terms of its predictive ability of US recessions.

Long term US treasury yields (the interest these bonds pay) have continued to fall quite sharply. Today the spread between the 2 year and 10 year treasuries is the lowest it has been for more than a decade.

So we’ve updated the chart and numbers that point to how far off the next US recession might be. Spoiler alert: To coin a US phrase, we are late in the final inning.

Could Gold Sentiment Get Any Worse?

The negative sentiment towards gold is clearly shown by the record net-short positions of speculative investors in Comex gold futures and options.

“In a research note ANZ, a bank, points out that the short position (bets that gold will be cheaper in future) is the highest since data was first collected by the CFTC in 1993.

It’s also the first time since 2001 that investors have entered a net short position (gross shorts exceeding gross longs).

ANZ analysts Daniel Hynes and Soni Kumari say in the past, “such extreme levels of short positions have led to a rally in prices”:

“1999, short positions rose fivefold to hit a then record level of 80,000 contracts. Not long after, gold prices rallied 16% from USD250/oz to USD290/oz over the course of two months.

Short positions spiked again in July 2005 and January 2016, with gold prices rallying 12% and 14% respectively over the subsequent three months. In both these cases, the net long position was extremely close to being negative.

This raises the spectre of investors closing out their record level of short positions, and thus starting a short covering rally.”

Maybe All the Bad News is Priced in?

“The environment for gold remains challenging,” said Carsten Menke, a commodity analyst at Swiss private bank Julius Baer. “That said, a lot of bad news is priced in and even in the short term, there should be more upside than downside. We upgraded our view to ‘constructive’ and bought a first position.”

“Speculative traders are net short for the first time since the turn of the century, suggesting that prices are bombed out on current levels,” Menke added. “Hence, it is very unlikely in our view that gold falls back towards the lows reached during the past year’s bear market.”

Have Gold Miners Reached the Point of Capitulation?

SentimentTrader’s Jason Goepfert reports that almost every U.S.-traded gold mining stock fell to a 52-week low last Wednesday or Thursday:

“That’s the biggest cluster of 52-week lows in the miners in five years. In the past 25 years, similar clusters signaled capitulation selling and excellent medium-term returns.”

Goepfert also commented on the commitment of traders report:

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers reduced their net short position in gold, now holding less than 2% of open interest as a net short, only the 2nd time in 15 years (early December 2015 was the other, which was the bottom for gold prices). Their total position in precious metals is now among the most position since 2002.”

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The Legal stuff – Disclaimer:
We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.